Please illustrate a graph of 45 - degree equality line, based on the following questions that have been answered,

C = 155 + 0.75Yd, where C = consumption function; Yd (Y-T) = Disposable income

I = 150; I = Investment

G = 200; G = Government expenditure

T = 100; T = tax revenue

X = 40; X = Export

M = 30; M = Import

Also assume that Yf = Full employment GDP (potential GDP) = 2,000

• Estimate the equilibrium GDP level (income, Ye).

Ye = (C + I + G + (X - M)

Ye = ((155 + 0.75(2000-100)) + 150 + 200 + (40 - 30))

Ye = 1940

• Estimate the level of aggregate consumption (C).

C = 155 + 0.75Yd

C = 155 + 0.75(2000-100)

C = 1580

• Estimate the level of aggregate savings (S).

AE = C + I + G + (X-M)

AE = 1580 + 150 + 200 + (40-30)

AE = 1940

• The MPC and MPS for the economy are respectively ____ and ____.

MPC = C / Y

MPC = 1580/(2000-100)

MPC = 0.83

MPS = 1- MPC

MPS = 1- 0.83

MPS = 0.17

• The expenditure multiplier for the economy is ____.

E-Multiplier = 1/1-MPC

E-Multiplier = 1/1-0.83

E-Multiplier = 5.88

• The tax multiplier for the economy is ____.

Tax-multiplier = MPC/MPS

Tax-multiplier = 0.83/0.17

Tax-multiplier = 4.88

• Given the value of full employment level of GDP above, the GDP gap is ____.

GDP gap = potential GDP - actual GDP

GDP gap = 2000 - 1940

GDP gap = 60

• The government spending needed to bridge the GDP gap you found in Q7 above would be _____.

Ye = C + I + G + (X-M)

2000 = 1580 + G + 200 + (40-30)

2000 = G + 1790

G = 210

• If the export value increases to 60 due to a decrease in the value of the US$, other things staying the same, then the answer to Q1 would be ____.

Ye = C + I + G + (X-M)

Ye = 1580 + 150 + 200 + (60-30)

Ye = 1960

• In addition to an increase of export value in Q9, if the import value decreases to 20 for the same reason, other things remaining the same, then the answer to Q1 would be ____.

Ye = C + I + G + (X-M)

Ye = 1580 + 150 + 200 + (60-20)

Ye = 1970

• In Q8, the GDP gap and recessionary gap are respectively ___ and ___.

GDP gap = 0

Recessionary gap = 0